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Depositors Discipline through Interest Costs during Good and Bad Times: the Role of the Guarantor of Last Resort1

Author

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  • Krzysztof Jackowicz

    (Kozminski University
    Kozminski University)

  • Oskar Kowalewski

    (IESEG School of Management)

  • Łukasz Kozłowski

    (Kozminski University)

Abstract

We investigate whether the public sector’s ability as the guarantor of last resort (GLR) to help banks or to guarantee banks’ liabilities affects the sensitivity of interest costs to bank fundamentals. We use a global bank sample and find that the sensitivity is an increasing function of GLR risk, regardless of the method applied to describe this risk. Therefore, our results indicate that increased levels of GLR risk might foster market monitoring by depositors.

Suggested Citation

  • Krzysztof Jackowicz & Oskar Kowalewski & Łukasz Kozłowski, 2018. "Depositors Discipline through Interest Costs during Good and Bad Times: the Role of the Guarantor of Last Resort1," Journal of Financial Services Research, Springer;Western Finance Association, vol. 54(2), pages 179-205, October.
    • Handle: RePEc:kap:jfsres:v:54:y:2018:i:2:d:10.1007_s10693-016-0266-x
    DOI: 10.1007/s10693-016-0266-x
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    Cited by:

    1. Jackowicz, Krzysztof & Kozłowski, Łukasz & Podgórski, Błażej & Winkler-Drews, Tadeusz, 2020. "Do political connections shield from negative shocks? Evidence from rating changes in advanced emerging economies," Journal of Financial Stability, Elsevier, vol. 51(C).
    2. Giang Phung & Michael Troege, 2024. "Making depositors greedy and careless: Government safety nets and the degradation of depositor discipline," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(3), pages 921-947, July.

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    More about this item

    Keywords

    Depositor discipline; Banking; Financial stability; Crisis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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